Five years after filming, Big Sky Productions still hasn’t released “Spring Break ’83,” a coming-of-age teen comedy. But within the employment law community, the film has generated some excitement anyway as a result of a lawsuit that sound and lighting technicians, known as “grips,” filed seeking unpaid wages after working on the film in Louisiana in 2007.

On July 24, the 5th Circuit ruled in Martin v. Spring Break ’83 Productions that a union-negotiated settlement precluded the plaintiffs from pursuing their claims under the Fair Labor Standards Act (FLSA), even though neither a court nor the Department of Labor (DOL) ever approved the settlement. That contravened an 11th Circuit ruling that stood for 30 years as the only federal appellate decision on an issue that often arises when employers terminate or lay off workers. That decision, in Lynn’s Food Stores Inc. v. United States, required court or DOL supervision of an FLSA settlement to protect workers from employers who might coerce them into waiving their rights.

But the 5th Circuit found that in certain circumstances, a settlement waiving those rights could be valid without court or DOL oversight. Specifically, the court said that the plaintiffs in Martin had legal representation, had filed a lawsuit seeking overtime pay and were aware of their rights under the FLSA before the union and the employer signed the settlement agreement in November 2007. In Lynn’s Food Stores, on the other hand, the plaintiffs were unaware of their rights, had no lawyers and some didn’t speak English—bad facts that made bad law, according to Paul DeCamp, a Jackson Lewis partner.

Nonetheless, the 11th Circuit’s ruling stood for three decades, making Martin particularly noteworthy as a first step toward changing the rules on FLSA settlements.

“For 30 years, employers have assumed private settlement of FLSA claims would not be enforced,” DeCamp says. “It’s an issue of ongoing importance for FLSA claims all over the country. This will give employers and workers an opportunity to consider whether to try to effect a private settlement of FLSA claims.”

Grips’ Grievances

Martin started when the grips filed grievances with their union, contending they had not been paid for all the hours they worked. A union representative investigated the merits of the claims and concluded it would be impossible to determine whether they had worked on the days for which they sought payment. The union and the employer entered a settlement agreement with broad release language. The plaintiffs received and cashed settlement checks.

Before the union signed the settlement, however, four of the grips filed suit in California for their claimed overtime pay. The defendants successfully moved the claims to Louisiana, where the district court granted them summary judgment. It cited a decision from the Western District of Texas, Martin v. Bohls Bearing Equipment Co., in which the court held that a “private compromise of claims under the FLSA is permissible where there exists a bona fide dispute as to liability.” Citing the union representative’s conclusion that it would be impossible to determine whether the plaintiffs worked on the days they claimed, the district court ruled that a bona fide dispute existed.

On appeal, the plaintiffs cited Lynn’s Food Stores in attempting to invalidate the settlement. But the 5th Circuit said the circumstances were significantly different. Unlike the Lynn’s Food Stores workers, who the 11th Circuit said were vulnerable to exploitation, the Martin plaintiffs had attorneys who had filed a lawsuit specifically seeking overtime pay before they signed the settlement agreement.

“The money [plaintiffs] received and accepted … for the settlement of their bona fide dispute did not occur outside the context of a lawsuit, hence the concerns that the 11th Circuit expressed in Lynn’s Food Stores [were] not implicated,” the 5th Circuit wrote.

Settlement Hurdles

Employment lawyers say Martin is a step in the right direction.

“This is a hot-button issue” because of the huge expansion of FLSA litigation in recent years, says John Lewis, a partner at Baker Hostetler. “For years, employment lawyers have been trying to find out as a practical matter how to release [FLSA] claims. This is the beginning of an examination of under what circumstances an employer and employee can sign a viable release.”

Reed Russell, a partner at Phelps Dunbar, says both plaintiffs and defense lawyers will welcome the decision.

“Court review can be a hurdle to settlement,” he says. “Both parties would like to remove those hurdles; they don’t want a third party to blow a settlement up. Plaintiffs struggle as much over Lynn’s Food Stores as employers do.”

Lewis adds that employers don’t want DOL review of settlements either because that can lead to other DOL action. “You are elevating the potential for a difficult separation when you take it to the DOL,” he says.

Additionally, because of the dearth of circuit opinions on this topic, the 5th Circuit decision is likely to guide federal courts in other circuits, except the 11th.

“There has been a huge amount of gray area, and this case starts clearing away some of the mist and identifying concerns that should be looked at before a release can be viable,” Lewis says. “Because of the fact pattern, it is not the be all and end all. But other courts will consider it in reaching a judgment on these issues.”